CAD likely to stay below 1% of GDP this year: DBS

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India's current account deficit is likely to stay below 1 percent of GDP this year, largely due to a sharp fall in the trade deficit as against last year, says a DBS research report.

India's trade deficit in September stood at USD 8.33 billion when the trade gap was the highest in the last nine months.

According to the global financial services major DBS, the widening of the trade deficit will be "watched closely", especially at a time when the services sector receipts and private transfers are under pressure.

"That said, a sharp fall in the trade deficit vis-i-vis last year suggests this year's current account deficit is likely to stay below 1 percent of GDP from (-) 1.1 percent in 2015-16," DBS said in a research note.

In September, exports went up 4.62 percent to USD 22.9 billion, while the country's imports contracted by 2.54 percent to USD 31.22 billion, leaving a trade deficit of USD 8.33 billion.

The trade gap was USD 11.66 billion in December 2015 while in September 2015, it stood at USD 10.16 billion.

Regarding inflation and the consequent policy action, the report said that the Reserve Bank's policy decisions are likely to primarily take direction from CPI trends.

"Policy decisions are likely to primarily take direction from CPI trends, where the direction will be favourable over the next few months," the report said adding that policymakers are also likely to balance rate easing against demand dynamics in the pipeline and likelihood of US rate normalisation before year-end.